Accounting
BTA 112 Exam 2 Problem #1. Issuing Stocks for Cash or Non-cash Assets. Rolman Corporation is authorized to issue 1,000,000 shares of $5 par value common stock. In its first year, the company has the following stock transactions. Jan. 10 Issued 400,000 shares of stock at $8 per share. July 1 Issued 100,000 shares of stock for land. The land had an asking price of $900,000. The stock is currently selling on a national exchange at $8.25 per share. Sept. 1 Purchased 10,000 shares of common stock for the treasury at $9 per share. Dec. 1 Sold 4,000 shares of the treasury stock at $10 per share. Instructions (a) Journalize the transactions. (b) Prepare the stockholders’ equity section assuming the company had retained earnings of $200,000 at December 31. Problem #2. Treasury Stock Transactions Star Corporation purchased from its stockholders 5,000 shares of its own previously issued stock for $250,000. It later resold 2,000 shares for $53 per share, then 2,000 more shares for $48 per share, and finally 1,000 shares for $43 per share. Instructions (a) Journalize the transactions. Problem #3. Allocating Cash Dividend between Preferred and Common Stocks At December 31, 2021, Lebron Company distributes $50,000 of cash dividends. At December 31, 2022, Lebron Company distributes $120,000 of cash dividends. Its outstanding common stock has a par value of $400,000, and its 6% preferred stock has a par value of $100,000 at December 31, 2021. Instructions (a) Show the allocation of dividends to each class of stock in 2021 and 2022, assuming that the preferred stock dividend is 9% and not cumulative. (b) Show the allocation of the dividends to each class of stock in 2021 and 2022, assuming the preferred stock dividend of 8% is cumulative and Lebron Company did not pay any dividends on the preferred stock in the preceding 2 years. (c) Journalize the declaration of the cash dividend at December 31, 2021, assuming the requirements in part (b). Problem #4. Stock Issuance Transactions On January 1, Michelle Corporation had 95,000 shares of no-par common stock issued and outstanding. The stock has a stated value of $5 per share. During the year, the following occurred. Apr. 1 Issued 55,000 additional shares of common stock for $17 per share. June 15 Declared a cash dividend of $1 per share to stockholders of record on June 30. July 10 Paid the $1 cash dividend. Dec. 1 Issued 2,000 additional shares of common stock for $19 per share. Dec 15 Declared a cash dividend on outstanding shares of $1.20 per share to stockholders of record on December 31. Journalize the above transactions. Problem #5 Classifications of Cash Flow Activities Tabares Corporation had these transactions during 2021. (a) Issued $50,000 par value common stock for cash. (b) Purchased a machine for $30,000, giving a long-term note in exchange. (c) Issued $200,000 par value common stock upon conversion of bonds having a face value of $200,000. (d) Declared and paid a cash dividend of $18,000. (e) Sold a long-term investment with a cost of $15,000 for $15,000 cash. (f) Collected $16,000 of accounts receivable. (g) Paid $18,000 on accounts payable. Instructions Analyze the transactions and indicate whether each transaction resulted in a cash flow from operating activities, investing activities, financing activities, noncash investing and financing activities, or non-cash operating cash adjustments (shall it be added to or subtracted from Net INcome). Problem #6 Cash Flow Statements Comparative balance sheets for International Company are presented below. Prepare a cash flow statement by using an indirect method. Instructions Prepare a statement of cash flows for 2021 using the indirect method. INTERNATIONAL COMPANY Comparative Balance Sheets December 31 Assets 2021 2020 Cash $ 73,000 $ 22,000 Accounts receivable 85,000 76,000 Inventory 180,000 189,000 Land 75,000 100,000 Equipment 250,000 200,000 Accumulated depreciation —equipment (66,000) (42,000) Total $597,000 $545,000 Liabilities and Stockholders’ Equity Accounts payable $ 34,000 $ 47,000 Bonds payable 150,000 200,000 Common stock ($1 par) 214,000 164,000 Retained earnings 199,000 134,000 Total $597,000 $545,000 Additional information: 1. Net income for 2021 was $135,000. 2. Cash dividends of $70,000 were declared and paid. 3. Bonds payable amounting to $50,000 were redeemed for cash $50,000. 4. Common stock was issued for $50,000 cash. 5. Depreciation expense was $24,000. 6. Sales revenue for the year was $978,000. 7. Land was sold at cost, and equipment was purchased for cash. Bonus Problem. Retained Earnings Statement Oswald Company reported retained earnings at December 31, 2021, of $400,000. Oswald had 200,000 shares of common stock outstanding throughout 2021. The following transactions occurred during 2021. 1. An error was discovered; in 2020, insurance expense was recorded at $90,000, but the correct amount was $60,000. 2. A cash dividend of $0.50 per share was declared and paid. 3. A 5% stock dividend was declared and distributed when the market price per share was $18 per share. 4. Net income was $310,000. Prepare a retained earnings statement for 2021.